UK government gives security green light to Vodafone and Three merger

Following a national security assessment, the UK government made a final order yesterday in relation to section 26 of the National Security and Investment Act 2021, decreeing that the merger can go ahead – subject to some conditions.

First of all, a National Security Committee must be established within the new merged entity to oversee ‘sensitive work which has an impact on or is in respect of the national security of the United Kingdom.’ This committee will be required to provide regular updates and information to the government.

A technical group within this National Security Committee must also be set up, tasked with monitoring a specified list of topics relating to ‘cyber, physical and personnel security’ and which will also have to report back regularly.

The merged entity’s network migration planning is also subject to review by an external, Government-approved auditor, and it must put in place ‘specified arrangements for the governance of MergeCo.’

We’re told that The Secretary of State considers that these measures mitigate any risks to national security in relation Vodafone’s role as a strategic supplier of services to various parts of the government, as well as the security of UK networks and data ‘resulting from the process of merging two large, complex organisations and their respective staffing, policies, processes and networks.’ 

A joint statement by Vodafone and Three said: “We are pleased our proposed joint venture has been approved by the Government under the National Security and Investment Act.

“We are continuing to engage collaboratively with the Competition and Markets Authority to inform its ongoing review of our merger, which we strongly believe will strengthen competition in the UK’s mobile sector and enable a significant step-up in the UK’s mobile network infrastructure.”

The Competition and Markets Authority began Phase 2 of its separate investigation into the proposed £15 billion merger in April, following the conclusion of the preliminary Phase 1 probe in which the watchdog warned the tie-up could leave consumers and businesses paying higher prices for lower-quality services.

The second deeper investigation into the deal was ‘an expected next step’ in the process and is within the anticipated timeframe for completing their merger, said Vodafone and Three in joint statement at the time. The CMA has until 18 September to complete it.  

When it started the process, the CMA insisted that this assessment is strictly on the grounds competition, and It cannot consider other aspects like access to personal data and national security concerns, which it says are a matter for the UK government, ‘which may choose to intervene under the National Security and Investment Act if it finds concerns.’ Any fears of that happening, perhaps in relation to the fact Three is owned by Hong Kong-based CK Hutchison, would seem to have been alleviated with today’s announcement.

Three and Vodafone for their part take any opportunity that presents itself to make the case that the merger will be good for the UK sector and that without it both firms will struggle to carry on investing in networks. Despite clocking a 9% revenue and margin jump during Q1, Three’s Chief Executive Officer Robert Finnegan said yesterday: “Our EBITDA-CAPEX remains negative, as it has been since 2020, which is unsustainable long-term. I believe that merging with Vodafone is vital to give us the required scale to invest, grow and compete to create a best-in-class network for the UK.”